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Profligate discounting could make 2019 the most promotional holiday season since the recession, according to one analyst. And hardest hit by price wars may be department stores, some of the largest of which have reported comparable sales declines for the all-important sales period.

Along with department stores are apparel sellers and other specialists tied to the same malls. The struggling L Brands, with its declining Victoria's Secret brand, also reported negative comparable sales for the holidays, for example.

Target

Target's comparable sales rose 1.4% in November and December. That fell short of the company's expectations, with previous projections of 3% to 4% growth for the fourth quarter. It also fell well below the 5.7% growth in the year-ago period.

The holidays threw some cold water on an otherwise robust year of growth at Target. Digital sales also lost some momentum during the holiday period.

Dragging down the mass merchant's overall sales were comparable declines in the electronics (down more than 6%) and home (down 1%) categories. Comps in toys — an important category for holiday sales — remained flat. At the same time, comps in important categories for Target expanded: apparel was up 5%, beauty up 7% and food up 3%. More, Target said it grew market share in apparel, beauty, home essentials and toys, despite the flat comps in the latter category.

With sales of high margin goods strong compared to low-margin products, Target expects its earnings guidance to hold despite the sales miss. Neil Saunders, managing director of GlobalData Retail, suggested part of the sluggish sales growth in big ticket categories like electronics and home could be attributed to the shortened time between Black Friday and Christmas in 2019, as well as a new tech lineup from electronics brands that was "far from inspiring this season."

GameStop

The company said the declines were "indicative of overall industry trends," which also made for a dismal third quarter that executives blamed on the transition between gaming console generations, with customers holding back on new purchases. But even against that backdrop, the extent of the sales loss during the holidays took the company by surprise and prompted GameStop to lower its guidance for fiscal 2019, with comps now expected to decline 19% to 21%.

"We expected a challenging sales environment for the holiday season as our customers continue to delay purchases ahead of anticipated console launches in late 2020," CEO George Sherman said in a press release. "However, the accelerated decline in new hardware and software sales coming out of black Friday and throughout the month of December was well below our expectations, reflective of overall industry trends."

On a brighter note, Sherman said that sales around the Nintendo Switch grew. He added that the company expects Q4's "challenges" to spill into 2020 but that "we believe we have the right long-term action plans in place to optimize profitability and increase new revenue streams in advance of new console introductions for holiday 2020."

Five Below

Five Below's sales for the holiday period increased 13.4% year over year to $596.6 million, but its comparable sales fell by 2.6%, the company said. President and CEO Joel Anderson said in a statement that comps during key selling periods were positive but were "not strong enough to overcome the headwind of six fewer shopping days between Thanksgiving and Christmas, and overall sales did not meet our expectations." The company's stock fell more than 20% Monday on the sales miss, and according to MarketWatch hit a one-year low in premarket trading.

Anderson added, though, that "strong inventory management and disciplined cost control" kept margins in line with estimates, and the discounter's earnings would come in at the low end of previous guidance. For the year, the company expects net sales to increase more than 18% to $1.8 billion, comp sales to tick up 0.5% to 0.7% and earnings per share to grow by as much as 16.5%.

The company also announced Five Below planned to open 180 new stores in 2020.

RTW Retailwinds

New York & Co. owner RTW Retailwinds lowered its Q4 guidance after falling store traffic and increased discounting led to "disappointing holiday sales." CEO Gregory Scott said in a statement that the company had growth in its core digital brand, celebrity brands and a double digit increase in its Fashion to Figure business. But that wasn't enough to offset sales declines. "These results emphasize the urgency to adapt to the challenges we face as a business," he said.

The company now expects comp sales to fall 8% to 10%, compared to previous expectations of a decline in comps in the mid-single digit range. It also anticipates a loss in the low to mid $20 million range, considerably worse than previous estimates of a loss in the $4 million to $8 million range. Scott said the company was working to rationalize its store footprint and invest in its "customer first initiative," and it was currently finalizing details of its strategic transformation.

Separately, RTW said in a press release it received a warning from the New York Stock Exchange that its stock had traded below $1 over a 30-day period, which could get it kicked off the exchange. The company said it would consider its options to increase its stock price, including through a reverse stock split. RTW has six months to boost its shares over $1 for a similar 30-day period to regain compliance with NYSE.

Urban Outfitters

Urban Outfitters' sales for the two months ending Dec. 31 increased 2.9% year over year, the company announced. Comparable retail sales were up 3%, with digital sales growth compensating for negative retail comps. By banner, retail sales rose 8% at Free People and 5% at the Anthropologie Group, and sales decreased 1% at Urban Outfitters. The company credited Free People's "exceptional" sales performance with strong full-price sales and reduced discounting during the holidays.

That trend was inverted at Urban Outfitters and Anthropologie, where promotions were up during the holiday period, putting "greater pressure on our fourth quarter gross profit margin than originally anticipated," the company said. The company also spent more on delivery and logistics than originally planned as it tried to meet customer expectations.

Wholesale sales were down 9% overall. That channel is a "wildcard" going into the spring, "at least near term given ongoing challenges in the department store segment," analysts with MKM Partners said in an emailed client note.

J. Jill

Following the holiday period, J. Jill raised its guidance for Q4. The retailer expects comp sales to fall between 6% to 8%, which beats out previous expectations of negative comps of 8% to 10%. The struggling apparel retailer now expects total sales to decline 3% to 5%, compared to previous guidance for a decline of 5% to 7%, and now expects a lower net loss per share. CFO Mark Webb said that quarter-to-date sales were "better than expected" and the retailer made "progress clearing excess inventory while balancing earnings performance."

Abercrombie & Fitch

Abercrombie & Fitch reaffirmed management guidance for Q4 as the apparel seller said it hit record sales during Black Friday week and logged its "strongest topline in over five years," with the Hollister banner "setting a new record and momentum at Abercrombie continuing to build." The company expects net sales to increase 0% to 2%, with foreign exchange rates dragging on that number. Comparable sales are also expected to increase 0% to 2%. Abercrombie anticipates exchange rates and tariffs could lower gross profit by 150 basis points.

Lululemon

Activewear maker Lululemonraised its guidance for Q4 following a strong holiday. The company raised its revenue expectations to roughly $1.4 billion, up from previous estimates of $1.3 billion and buoyed by comp sales increases in the mid to high teens. CEO Calvin McDonald said in a statement that customers over the holidays "respond[ed] well to our innovative merchandise offerings."

J.C. Penney

J.C. Penney's comp sales fell 7.5% for the nine weeks ending Jan. 4. Excluding large appliances and in-store furniture — categories the retailer exited — comps were still down 5.3% during the holiday period. That adjusted figure is worse than the 4.1% negative comps Penney reported for the 2018 holiday period. The company's stock price fell by more than 4% in the early minutes of trading on the day of the announcement.

The negative comparable sales continues a streak of sales losses in recent periods as the struggling department store retailer tries to rebuild its profits and ultimately its sales base through merchandising initiatives and a new test store, among other moves.

The holiday period didn't change Penney's guidance for the full fiscal year 2019. Executives still expect comp declines of 7% to 8% and adjusted comps (with furniture and appliances taken out) of negative 5% to 6%. Penney also expects positive cash flow, EBITDA of more than $475 million and for cost of goods sold to decline by up to 200 basis points.

Kohl's

Last year, Kohl's saw holiday comp sales rise 1.2%, which some analysts deemed a disappointment while others saw progress. Any momentum appears to have slowed this year: the department store on Jan. 9 reported that November to December holiday comparable sales fell 0.2% year over year. In response, the retailer pulled back expectations for its fiscal 2019 earnings to the lower end of its guidance.

In a statement, CEO Michelle Gass noted that the holiday period had healthy sales in e-commerce, activewear, beauty, children's and men's, but missed on women's apparel. Indeed, GlobalData Retail research has found that Kohl's is ceding market share in that segment to Target and off-price retailers.

The decline could represent a referendum of sorts on the retailer's tie-up with Amazon — all Kohl's stores now take Amazon returns. That has boosted traffic, though it's not clear how much it's boosted sales. Of course, the holiday returns season isn't likely over and could yet give Kohl's a lift.

The results were "not a disaster," GlobalData Retail Managing Director Neil Saunders said in emailed comments. "However, they demonstrate that there is still much work to do in improving the offer. Initiatives like Amazon returns are good at driving footfall, but Kohl's needs to convert that traffic into money in its own registers."

L Brands

For the nine-week holiday quarter ended Jan. 4, L Brands said net sales dropped to $3.91 billion from $4.07 billion last year. Comparable sales fell 3% in the period, and margins shrank. As it was all year, the story was one of decline in the company's signature lingerie business and growth in its smaller bath and beauty business.

Victoria's Secret's holiday was "below expectations," according to a webcast posted by Chief Investor Relations OfficerAmie Preston, with quarter-to-date comps falling 12% at that brand, traffic down in the mid-teens and margin rate "down significantly" due to increased promotions. The brand's sister line, Pink, didn't fare any better, with comps down mid-teens and margins also down significantly, she said.

By contrast, the company's Bath & Body Works unit, which also suffered holiday margin declines due to promotions, tariffs, wages and last year's cost concessions, saw "strong customer response" to key promotions, and comps were up 9%, Preston said.

That's because the personal care retailer had strong seasonal merchandise that appealed as gifts or self-indulgences, with "bright and cheerful" stores and good holiday deals, according to GlobalData Retail Managing Director Neil Saunders.

But Victoria's Secret dragged that down, as it had all year, he also noted, adding that it's unclear whether L Brands executives will make needed changes. "It would be unfair to say that Victoria's Secret made no effort over the holidays," Saunders said in emailed comments. "But that effort did not bear fruit because, as usual, marketing and merchandising were misplaced. Consumers were looking for cozy, but the brand delivered risqué. That meant many shoppers went elsewhere."

Macy's

Macy's reported that store comps on an owned basis fell 0.7% over the nine-week holiday period ended Jan. 4, as comps on an owned plus licensed basis fell 0.6%. The impact on comp sales from "departments licensed to third parties" was growth of 0.1%, according to a company press release.

The decline was viewed by most analysts with a sigh of relief, in light of Macy's disastrous third quarter. What got more attention was the department store's same-day revelation of plans to shutter nearly 30 stores — 28 namesake stores and one Bloomingdale's — equal to almost a third of the 100-store reduction the company undertook a few years ago. The company said it would discuss such plans further during its investors day next month, though neither J.P. Morgan nor Credit Suisse analysts expect more closures to be announced for the year.

What Credit Suisse analyst Michael Binetti says he would like to see is more investment in 150-200 locations, similar to the attention now benefiting Macy's select "Growth150" magnet stores. Otherwise, some 250-300 stores are left "without a meaningful strategy," he warned in a Jan. 8 client note.